BofA Nears $16-$17B Settlement With U.S.

Bank of America has tentatively agreed to a settlement in which it would pay between $16 billion and $17 billion to settle an investigation into its role in the sale of mortgage-backed securities before the 2008 financial crisis, a person directly familiar with the matter said Wednesday.

The deal with the bank, which must still be finalized, would be the largest Justice Department settlement by far arising from the economic meltdown in which millions of Americans lost their homes to foreclosure. It would follow earlier multibillion-dollar agreements reached in the last year with Citigroup and JPMorgan Chase & Co.

The person, who spoke on condition of anonymity because the deal had not yet been announced, cautioned that some details still needed to be worked out and that it was possible the agreement could fall apart.

But the person said the two sides reached an agreement in principle following a conversation last week between Attorney General Eric Holder and Bank of America CEO Brian Moynihan.

The person said the deal calls for the bank to pay roughly $9 billion in cash and for the remaining sum to go toward consumer relief.

A bank spokesman declined to comment.

The Wall Street Journal first reported details of the settlement on Wednesday.

The Justice Department last year reached a $13 billion settlement with JPMorgan, and last month announced a $7 billion settlement with Citigroup.

Each of these deals are designed to offer some financial relief to homeowners, yet the cash totals from some of America’s largest banks are not nearly enough to reverse the damages caused by the bursting of the housing bubble and the ensuing recession that began in late 2007.

Millions of Americans lost their homes in foreclosures and found themselves jobless in the worst downturn since the 1930s. Even as the unemployment rate has clawed back to 6.2 percent from a peak of 10 percent, many Americans find they are no better off as average household incomes after inflation are still lower than what they were seven years ago.

Consumer groups criticized past settlements for being soft on the banks, noting that top executives at these firms have yet to face criminal charges for the actions of their companies.

The settlement stems from the sale of toxic securities made up of subprime mortgages. Banks played down the risks of subprime mortgages when packaging and selling the securities to mutual funds, investment trusts and pensions, as well as other banks and investors.

The securities contained residential mortgages from borrowers who were unlikely to be able to repay their loans, yet were publicly promoted as relatively safe investments until the housing market collapsed and investors suffered billions of dollars in losses. Those losses triggered a financial crisis that pushed the economy into the worst recession since the 1930s.

Bank of America had previously argued that it shouldn’t be held liable for the subprime mortgages issued by Countrywide and Merrill Lynch, two troubled firms the bank acquired in 2008 as the meltdown took hold. Combined, those three firms issued $965 billion in mortgage-backed securities from 2004 to 2008. Almost 75 percent of that total came from Countrywide.

Last week, in a separate case, the U.S. District Court in Manhattan rejected the claim that Bank of America should avoid penalties for pre-merger actions taken by Countrywide and issued nearly $1.3 billion in fines.

A federal jury convicted Countrywide and one of its former executives, Rebecca Mairone, for fraudulently selling 17,000 troubled mortgages to Fannie Mae and Freddie Mac. Mairone was ordered by U.S. District Judge Jed Rakoff to pay a $1 million fine.

The decision set a precedent that Bank of America had assumed the legal liabilities of Countrywide during the merger, increasing the pressure for the bank to reach a separate deal with Justice.

This article appeared in print in the August 7th, 2014 edition of Hamodia.